What the issue price means for you as an investor
For investors, the issue price determines how attractive the offer is in relation to the company's value. A price below the market price or assessed value can mean upside, while a high price requires greater confidence in the company's development.
The issue price also affects your average acquisition cost if you are already a shareholder and choose to take part in the issue.
How the issue price is normally set
The issue price is determined on the basis of several factors that together should produce a reasonable and achievable offer.
- The company's current valuation and capital requirements
- Market conditions and investor interest
- Level of risk and future growth potential
- Type of issue and target group
- The assessment of the board and any advisers
When these factors are weighed together, a price is set that should work for both the company and the investors.
When the issue price becomes a decisive factor
Worth bearing in mind
The issue price becomes especially important when the company needs to balance its capital requirements against the owners' interests. A low price can make the issue easier to fill but means greater dilution, while a high price reduces dilution but can lower demand.
The choice also affects the signal sent to the market. The price can be seen as a measure of the company's valuation, level of risk and future prospects.
Frequently asked questions
What is the difference between the issue price and the share price?
The issue price is the price in the issue, whereas the share price refers to the market price of the share when it is traded.
Can the issue price change after it has been set?
Normally it is fixed once the issue is announced, but it can be adjusted if the terms change before the start.
Why is the issue price sometimes set below the market price?
To make the issue more attractive and increase the likelihood that the capital is raised.
Does the issue price affect existing shareholders?
Yes, it affects the degree of dilution and whether it is advantageous to take part.
Who decides on the issue price?
The board usually decides on the price, sometimes under an authorisation from the general meeting and with the support of advisers.